Mining Equipment stocks look good.

So far, 2008 has been a very tough year in the stock market. With the worry of recession in the air, it's hard to find stocks that don't have somewhat of a "yah but" factor. Luckily, there are still some stocks that are benefiting from current global trends that don't have much risk to the downside. One area that fits this description is mining equipment. I have found two stocks in this sector that I really like. I couldn't decide which one I liked best, so I am recommending both Bucyrus International (BUCY) $107.17 and Joy Global (JOYG) $66.21. Both companies are benefiting from higher commodity prices which I expect to remain high. Now, you may ask why I'm just now recommending these companies since commodity prices have been high for quite some time. Well, most of the equipment that these companies make is used in coal mining. After a tough year in 2007, coal prices are up sharply due to severe weather in China and Australia and power outages in South Africa. Both companies should increase earnings by over 30% in 2008 and another 25+% in 2009. I think that kind of growth will be rewarded by the market and that there is little chance of an earnings disappointment from either of these companies.

Not So Fast

Yesterday the Fed got creative with the moves they made and we enjoyed a great rally. Experts hailed the Fed's moves as a way to help the credit crunch and address slowing economic growth without sacrificing the dollar. Today, we found out that investors still don't like the dollar. I have several investments that are at least partially based on the weakening dollar. Those are the gold ETF (GLD), the US Oil Fund (USO), the Swiss Franc ETF (FXF) and the Australian Dollar ETF (FXA). None of these are what I would consider large investments except for USO. Yesterday, I told you that I would sit tight with these positions since they were not sizeable, but I recommended taking profits if you have any in USO and GLD. I did not think the Fed would continue to cut rates aggressively given their moves yesterday. However, the sentiment is still favoring at least a fifty point basis cut next week. While I think there is never a bad time to take profits, I now think you can wait until the Fed announces their decision next week to see where it takes the market. I will continue to hold all of these positions. Since I have sold call options against all of my USO shares, I will have to wait until options expiration next Friday before deciding what to do with them.

The FED Gets Creative

Today was an historic day for the financial markets as the DOW was up over 400 points marking the biggest one day percentage gain in almost five years. The catalyst for the market was a new plan introduced by the FED and some foreign central banks where they agreed to loan $200 billion of treasury bills, which are insured by the government, in exchange for mortgage backed securities. If you go back to my stock market re-cap for 2007, I mentioned there were two terms we heard more often than any others; "sub-prime mortgage crisis" and "credit crunch". While the sub-prime mortgage crisis got the majority of the headlines. The silent killer was the credit crunch because it effected the ability of businesses and individuals to get loans. The reason that today's announcement is important is because it addresses the credit crunch. Up till now, the FED had tried to address both of these problems by slashing interest rates. The theory was that these interest rate cuts would widen the spread between the rates banks could borrow for and what they could loan the money for, so they would be more willing to loan and consequently they would make more money. However, the banks were scared to make loans because they had a lot of bad loans on their books. The takeaway for us on this is that the FED is no longer going to aggressively cut rates. That means the dollar is going to stabilize against other curencies and the worries over inflation should start to subside a little. In my last update, I recommended both the US Oil ETF (USO) and the Gold ETF (GLD) based on the thought that the Fed would keep cutting interest rates and the dollar would keep sinking and inflation would keep accelerating. I now think the upside for both of these ETF's is more limited. The USO should be supported by strong worldwide demand for oil, but I could certainly see it pulling back a little from today's close of $86.34. If you have profits in USO, it's time to take a little off the table. GLD is a little harder to call. Since gold is supposed to be an inflation hedge, you would think this would be very bearish news for gold. However, gold has been moving higher for several years and the move started a long time before inflation stated to creep up. I'm not sure how investors will trade it, but I would recommend selling some if you have profits or if you have an oversized position. If you're like me and have just a small position, you should probably wait to see how gold reacts to this news over a few days before deciding if you want to take action. As for stocks, I want to own companies that have growing earnings, pay a good dividend and have overseas exposure. One stock that has caught my eye lately is GE (closed today at $33.40) It had been making new 52 week lows almost every day until the huge rally today. Almost everyone should be familiar with GE. They have so many businesses it's too hard to name them all. But, the stock meets my three criteria and I would definitely be a buyer at today's closing price and would look to add to my position if it makes new lows.

Time for ETF's

So far, I've held back on recommending ETF's, but I think it's time to highlight a few of them. In the first two months of this year, commodities ETF's have been on fire. Just today, the gold ETF (GLD) and the crude oil ETF (USO) closed at all-time highs, at $97.72 and $83.80 respectively. The weak U.S. dollar and rising inflation have been driving these prices and I expect that trend to continue in the next few months. The Fed is now in rate cut mode and last week Ben Bernanke basically said we should expect more rate cuts in the near future. That obviously will drive the dollar lower and it will fuel inflation that's at it's highest level in quite a few years. One othr ETF that I like that I think we can make money with is the Direxion Dollar Bear 2.5 Fund. Today it closed at $26.46 and I would be a buyer at that price.

Look for Opportunities to Buy Later this Week

It was starting to look like we might have a sustainable rally on our hands early last week. Then, Ben Bernanke went to Capitol Hill and the market has been down every day since. Friday was especially bad with the DOW down over 300 points or about 2.5%. After a selloff like that, you would hope to feel good about buying. However, I think we need to wait until later this week when the jobs report comes out. It's not a big stretch to predict that the jobs number will be weak. I think this will give us a better buying opportunity than we have today. So, make out your shopping list and get ready to buy if we get the pullback that I'm predicting. But, remember to stay disciplined and buy in small increments on the way down. It's hard to pick the bottom in a stock and you're much better off having not bought enough by the time the stock recovers as opposed to having bought too much before the stock bottoms out.

Add more BEAV

Since I recommended BE Aerospace two weeks ago, the stock has performed very poorly. Today it hit an intra-day low around $32.60. This puts the stock trading at about 14 times 2008 estimates which is just absurdly low. The company is expected to grow earnings by 38% this year and management stressed during their last earnings conference call that the Boeing 787 delays will have very little if any effect on 2008 earnings. I hope to have a more detailed report on BEAV soon, but for now I'm recommending that you add to your position at today's closing price of $33.11. This brings the average price of my recommendation to $36.08.

Sometimes Opportunity Doesn't Last Long

In today's stock market, you have to be really nimble. In my last update, I noted that I would like to buy Annaly Capital (NLY) if the price dropped below $19.50. Unbelievably, the stock opened sharply lower and made it as low as $18.20 before quickly bouncing back to $20. This was a great opportunity that I missed. It seems that somehow, the bad news for Thornburgh Mortgage that was announced this morning effected Annaly. Now, it's absurd to tie these two companies together, although I can see how at first glance you might think they were in similar businesses. As I mentioned in my report on Annaly a few weeks ago, they are benefiting from the current environment. Each time the Fed cuts interest rates, the difference between their borrowing costs and the yield they collect on their investments widens. So, until the Fed is finished cutting rates or the stock becomes overvalued, I'm willing to hold my shares and collect the dividend. I wish the sale had lasted a little longer, but it just reiterates that you have to have a plan for each of your holdings and if you get a gift, you have to be very quick to react.